The Australian federal government has developed new legislation aimed at helping small start‐up companies attract high‐quality recruits and retain existing staff. The new legislation allows companies with less than $50 million turnover to offer employee share option plans (ESOPs) with deferred tax payments for up to 15 years. The start‐ups must also be companies that are unlisted and incorporated for less than 10 years. One of the first companies to take advantage of the new legislation, which came into effect on 1 July 2015, was Melbourne‐based software company Culture Amp. Culture Amp has grown substantially since January 2015, more than doubling its staff from 14 to 39 and adding a San Francisco office to its Head Office in Melbourne. Didier Elzinga, Culture Amp’s CEO and co‐founder, said that, given the rate of growth, the company will be able to provide the scheme as an incentive to employees only at this early stage of development and as the company matures there will be other ways to motivate staff. The concept behind the offering was to allow staff to feel they have an ownership in the firm. Elzinga said that employees feel empowered in the knowledge that they are a part-owner of the company and that can only lead to positives in terms of performance.

In implementing the scheme, Culture Amp consulted Herbert Smith Freehills, a specialist company who had advised the federal government in setting up the ESOPs legislation. Peter Dunne, partner at Herbert Smith Freehills, explained that there is a growing global trend of start‐up technology companies offering stock options and that employees are increasingly savvy about what benefits are available to them on top of traditional remuneration, with stock options now a big currency. Dunne said that more and more companies are looking at doing this, with it unlikely to abate any time soon.

Dunne also claims that in Australia, especially, employees need to be educated about the way share option schemes operate. ‘It’s incumbent on any company that puts this in place — and the Culture Amp guys do this well — to take people through how the plan works so it’s seen as a good offering, and not something clouded in mystique and uncertainty’.

QUESTION

What benefits do ESOPs provide to employees? How far can share options substitute for salaries in motivating employees?

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